There appears to be a surge in the Blockchain industry in terms of emerging innovations. A lot of startups are springing up on a daily basis with companies attempting to build Blockchain solution technologies to meet specific needs. With every new creation comes an associated financial obligation. This has given rise to the introduction of an innovative funding system known as the ICO.
Potentials and limitations
Larry Christopher Bates, chief security officer at Bitland, explains that the reason why ICOs are growing in popularity is that they are a vastly superior method of crowdfunding a business compared to what is currently available. Also, Bates notes that an ICO is much more reliable as an indicator of the emotional state of the market relative to stocks because ICOs can reflect anything from a white paper to a fully formed platform.
However, Bates clarifies that ICOs never represent equity, and many people do not understand this. Therefore, due diligence is of utmost importance when considering an ICO.
Bates tells Cointelegraph:
“The fear of missing out is real, and when people see others making money, they will rush to join without doing their due diligence. Then, when the price of a token drops, people will shout "scam" because they have no idea what is actually going on with a token, so they base the price drop as somehow being relative to their buy in.”
He continues by explaining that effectively, about 90 percent of all businesses fail before they reach five years of existence, so the idea that somehow the ICO trend is any different from the normal business world is not accurate. Further, it is that people who are so quick to shout "scam" before actually researching a coin that contributes to FUD, and may actually be doing it intentionally so they can short a token.
Bates concludes by identifying Ethereum as the best example of a use case of an ICO which then goes on from an ICO to become a platform, on which tons of other projects spawn and got funded.
“I don't even hold Ethereum and have been very critical of their protocol. But as well, one cannot deny that they are the "proof" of what an ICO can become,” he notes.
Easy route for easy riders
When compared to traditional investments, the relative popularity of ICOs is credited to a highly simplified model of participatory processes, unlike the traditional funding process that depends on the availability of individuals and funds in the near location.
According to Alexander Rugaev, CEO of Icopromo.com, for any startup to achieve a successful ICO, certain fundamental factors must be considered: the presence of a real problem in the industry for which the given startup proffers a tangible solution, and understanding of a clear business model and a model of working with the real market. While he believes that the reputation of the team members of a given project is important when assessing the genuineness of a project, investigating the competitive advantage and acquiring a proper understanding of the escrow terms are also vital areas when analyzing a given ICO.
He further explains that at the moment, hardly anyone will purchase tokens just for the sake of new cryptocurrencies. As it was at the dawn of the formation of the market, the community has become much smarter and public interest swings towards those projects which can provide real value, not only in numbers but in the real world.
Chris Cates, the lead developer at oWo, insists that ICOs are simply an easy route to making money. He thinks that the subject of ICOs is grossly overhyped with a lot of noise in the market. In his opinion, differentiating between projects that may succeed, those that may not and outright scams is a task that is not achievable.
Cates tells Cointelegraph that he would rather embrace bootstrap instead of embarking on an ICO, saying:
“I would honestly focus on bootstrapping. Developers should be able to leverage on plenty of existing tools to make their own tokens. I am pretty tired of all this speculation. We need actual use cases. That is why projects like BAT is historically a prime example of what not to do.”
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